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The GB Gambling Commission's position on eSports, virtual currencies and social casino gaming

On 15 March 2017 the Great British Gambling Commission (‘the Commission’) published its position paper on virtual currencies, eSports and social casino gaming. This follows its August 2016 discussion paper which looked to promote debate on a number of issues which have emerged from the development of interactive entertainment products particularly where there is a blurring of the boundaries between these activities and gambling. The position paper clarifies a number of key areas and confirms the Commission’s focus and approach. Some areas however remain opaque - the fast-moving nature of the technology which underpins these products means this will always remain an evolving area. It is however very clear that the Commission expects all those involved in, and benefitting commercially from, these products to regulate themselves, applying best practice from comparable sectors, as Susan Biddle and Chris Boylan explain.

eSports

eSports, or competitive video gaming, has been around for several decades. In 1980 game publisher Atari hosted the ‘Space Invaders Tournament’ which attracted 10,000 attendees in the United States, and mainstream popularity followed in the 1990s. Faster internet speeds allowed more complex strategic games, which featured in televised eSports tournaments in Asia Pacific in the 2000s. The global eSports industry was estimated to be worth $463 million in 2016 and has been predicted to be worth more than $1 billion by 2019[1]. The paper considers eSports from the perspective both of betting and gaming.

Betting on eSports

Currently eSports represents a very small percentage of the British gambling market[2], but the Commission notes that the increased range and volume of betting markets offered on eSports indicate the industry is confident of its potential for future growth. Refreshingly, the Commission has concluded that existing regulations (such as the current LCCPs and CAP and BCAP Codes) are sufficient to address the issues raised by eSports, and is not proposing to add bespoke codes or practices. However the Commission does consider that eSports may raise some additional concerns, notably in relation to integrity of the underlying eSports events, and underage gambling. It is good to see the Commission’s evidence-based approach - it points out that, perhaps contrary to preconceived ideas, 73% of eSports ‘enthusiasts’ are at least 20 years old[3].

However it acknowledges that a large number of children do both watch and participate in eSports, but considers that the existing regulatory mechanism can provide appropriate protection.

In relation to integrity, concerns have been expressed that the close relationships between players and their followers may increase the risk of misuse of inside information, and that the absence of recognised governing bodies, governance regimes and technical standards may mean bettors have no guarantee that eSports are being played on a level playing field. The Commission encourages all stakeholders in the eSports industry to recognise integrity risks in eSports and to be proactive in mitigating these risks using lessons learned from best practice in other sports. It usefully sets out a list of the issues which it would expect to be included in an appropriate governance regime. The Commission makes clear that this is the responsibility of all those involved, including those organising the events, promoters and those offering the opportunity to bet on the events.

It has stopped short of setting technical standards or requiring certification for the equipment on which the underlying games depend. However, even if mandatory standards and certification are a step too far at this stage, a voluntary regime might offer compliant businesses a reputational advantage - and a competitive one if current expectations are mandated by the Commission in the future.

Playing eSports for a prize

The paper also considers when playing eSports for a prize could be playing a game of chance for a prize, and so be gaming requiring an operating licence. ‘Sports’ are not games of chance but (in the absence of any designation from the Secretary of Sport to the contrary) the Commission’s current view is that eSports do not fall within this general exemption. Playing eSports will therefore be gaming unless the underlying game is a game of skill (or any chance element is so insignificant as not to matter). In responding to the discussion paper, the video game industry argued that the underlying games used for eSports were inherently skill games, where skilled players have considerable control over the outcome and are consistently more likely to win than less skilled opponents. The Commission currently accepts that most professional eSports events fall into this category at present, and so do not require an operating licence.

However there is a wide range of games and genres within the umbrella term of eSports and many of these do include some (notional) elements determined at random. The Commission stresses that it will be important for both games developers and organisers of eSports events to assess the relative elements of skill and chance in, and the mechanics and presentation of, any game before it is used in relation to a prize of money or money’s worth, and to be able to support a decision that a game does not fall on the gambling side of the line.

The authors of this article hope that, as these products and technologies evolve and the Commission considers particular examples, it will update its guidance so that, over time, clearer guidance can be given on the factors which will contribute to the analysis of eSports as games of skill or chance.

Match-ups

In its discussion paper, the Commission suggested that commercial entities which provide facilities enabling eSports players to play against one another in match-ups and to bet on themselves to win, might be offering (pool or fixed odds) betting or acting as a betting intermediary.

The Commission recognises that the distinction between arrangements for players to pay to participate in competitive tournaments, and betting/arrangements to facilitate players making/accepting bets on themselves, is not straightforward. It proposes to focus on arrangements relating to the outcome of video games where there is a risk of harmful behaviours such as chasing losses and/or long periods of incentivised play, or where there is unfairness or fraud, and has helpfully provided a (non-exhaustive) list of factors which it will consider in assessing these arrangements. In broad terms, bilateral arrangements where the prizes/winnings are determined by participants or by the outcome are more likely to be gambling than multiparty arrangements where participants contract with the organiser rather than with each other and prizes are determined by the organiser and do not vary with the number of participants or the outcome. If the participants’ and the organiser’s only interest is in the wager, this will be more likely to be gambling than if the promoter is also interested in other aspects such as sponsorship, media rights, ticket sales or merchandise. The Commission will also take into account how an opportunity is presented and whether it uses gambling imagery or is linked to mainstream gambling, and will in particular investigate cases raised via consumer complaints.

Gambling with in-game items (‘skins’)

The Commission is paying close attention to the growing popularity of ‘in-game items,’ which can be won, traded with other players or bought from game publishers. Typically these are in-game currencies, points, additional or enhanced equipment or aesthetic upgrades to a player’s game play. Concern has arisen where these items are used for remote gambling, if they are not provided in a ‘closed loop’ but can be ‘cashed out’ for money or money’s worth. The Commission is very clear that where these items can be converted into cash, or traded for other items of value, they are ‘money or money’s worth’ and providing facilities to gamble with such items therefore requires an operating licence.

Again, the Commission has sensibly adopted an evidence-based approach. From this, it concludes that the restrictions on converting these items into money or items of value, which are included in the terms of their use and in the networks by which the games are accessed, are circumvented far more often than the ‘occasionally’ which the video game industry admits.

The Commission justifiably highlights its recent successful prosecution in the FutGalaxy[4] case as an example of this type of activity, the risk it poses to children, and the Commission’s approach to those offering such facilities. FutGalaxy.com was a social gaming website which offered players the chance to bet on real-life football matches or to play a jackpot lottery style game using a virtual currency called FUT coins. These coins could be earnt by playing the Fifa football video game in Ultimate Team mode. Fifa terms prohibited the buying and selling of FUT coins, but in reality (and despite the Fifa game publisher banning thousands of accounts for trading in the coins) the Court found that they could be readily converted into cash on black market websites. FUTGalaxy imposed no age restriction on its players, and in the Judge’s view the defendants knew children used the site or at least turned a blind eye to this. The Commission has been clear that the product’s popularity amongst children increased its concern about FUTGalaxy, and the Judge similarly emphasised that the fact that children were gambling on the FutGalaxy website was an aggravating factor. The case demonstrates the Commission’s willingness to take action against those who use tradeable virtual items as a de facto currency, particularly where children are involved.

Acquisition of in-game items

The paper also considers whether the very acquisition of in-game items may itself constitute gambling. Where players buy ‘keys’ from the games publisher to unlock ‘crates’ containing an unknown number and value of in-game items, this can be analysed as payment of a stake (the price of the key) for the chance to win a prize (the in-game items) determined by chance - so if those in-game items can be readily converted into money or money’s worth, this is likely to be regarded as gambling requiring a licence.

The Commission’s approach

The Commission recognises that the position on gambling with in-game items is complicated by the fact that the video game, the cash-out facility and the gambling may be provided by different entities, and that it has seen nothing to suggest games publishers, developers or network operators are intentionally providing or advertising unlicensed gambling or entering agreements with those who are. However, it stresses in this paper that the video games industry must not be - or be perceived to be - passive about the exploitation of their player community by predatory third parties who offer gambling using tradable in-game items. Even if games publishers receive no direct benefit from these illegal gambling activities, the Commission considers they are likely to benefit indirectly, for example as the ultimate source of in-game items bought to replace those lost in unsuccessful gambling. The Commission notes that during 2016 a number of large video game developers took action to disrupt the illegal supply of gambling facilities using their in-game items and, separately from this paper, the Commission has been clear that it regards those who take such action as part of the solution rather than part of the problem.

The Commission sensibly recognises that there can be practical difficulties in identifying the offending operators, or where their assets are outside the Commission’s reach, and that a zero tolerance approach to small-scale secondary markets may be impractical or disproportionate to the licensing objectives. Its priorities for enforcement activity will be the protection of British consumers, particularly children, and relevant factors will include the proximity of the gaming and facilities for exchanging the in-game items for monetary value, any overt relationships between those providing the gaming and the exchange facility, and the ease with which the items can be exchanged. Whilst the providers of the unlicensed gambling websites remain primarily responsible for that gambling, the Commission is clearly putting games publishers and network operators on notice that they may share responsibility if they do not properly oversee their closed loop systems, and do not actively disrupt others who wish to offer either a means to exchange in-game items or gambling facilities using such tradable in-game items.

Social casino gaming

The Commission’s focus continues to be on social games which look and feel like traditional gambling, with the primary concerns being problem gambling style risks (excessive play or expenditure, and pre-occupation), transition to real money gambling, and consumer protection.

Again, the Commission has adopted an evidence-based approach, referring for example to independent research[5] into the risks of social casino gamers migrating to real money gambling which indicates that it is the small minority who make in-game purchases who are most likely to transition. The Commission suggests that future research might usefully be focussed on this sub-group.

It reports that the evidence it has gathered does not indicate any significant shift in the patterns of play or demographics since its 2014/15 review, and its view therefore remains that there is currently no need for additional regulation. However, it is clear this depends on the industry ‘maintaining a proactive and credible socially responsible approach’ which should include testing, evaluation and sharing of best practice consumer protection, in the light of regularly updated, independent, peer-reviewed research which should be made widely available.

With gambling operators increasingly entering the social casino market, this area will no doubt remain under review.

The Commission considers that the opportunity to win additional items such as chips, spins or tokens will make a social casino game gambling only if those items can be converted into money or money’s worth. The Commission’s present view is that a social casino game will not be gambling just because such items could alternatively be acquired by purchase; it will be interesting to see whether other regulators who are currently considering this question take the same view.

The Commission also considered loyalty schemes which reward players with points for such things as frequency of visits, referring friends, time or money spent, or adverts watched. Those points may be exchanged for in-game benefits or, increasingly, for real world rewards such as travel and entertainment. Where points are derived from actions relating to the outcome of the game and can be exchanged for goods or services with a monetary value, the Commission considers that provision or promotion of the underlying game would require an operating licence. For example, points awarded for referring a friend are unlikely to trigger a licence requirement, but points based on time spent playing would do so (because players can play longer if they win more chips).

Conclusion

The paper includes some useful guidance on the Commission’s focus areas and the criteria it will apply in relation to these developing products. It is heartening to see the emphasis on an evidence-based approach. The Commission continues to stress the need for the industry to be proactive in self-regulation, and it is very clear that - inevitably, given the rapid development of new technology and products - these sectors and the Commission’s approach will remain under review.

[4] On 6 February 2017, following a prosecution brought by the Gambling Commission, Dylan Rigby, 34, of Colchester, Essex, and Craig Douglas, 33, of Ilford, Essex, entered guilty pleas to offences under the Gambling Act 2005. Rigby was ordered to pay £174,000 in fines and costs, whilst Douglas was ordered to pay £91,000.